Fresh milk is all the rage these days.

There simply isn’t enough supply here in Malaysia.

Based on 2019 fresh milk consumption and production figures, the nation has been experiencing an undersupply of milk.

This has caused a reliance on imported milk, where this has been subsisted by foreign players since a long time ago. Today, consumption continues to grow while production supply is unable to meet the rising needs.

Thus not surprisingly, milk companies in Malaysia are in demand.

Back in 2018, Singaporean private equity fund Dymon Asia Pte Ltd invested into Malaysian dairy company, The Holstein Milk Company Sdn Bhd.

Holstein is the integrated producer, distributor and brand owner of the Farm Fresh brand in Malaysia and Singapore.

There are talks of a planned listing for Farm Fresh sometime in the future.

Not to be left out, FGV Holdings Bhd in Feb 2020, ventured into the dairy farm business with the acquisition of a 60% stake in RedAgri Farm Sdn Bhd for RM10mil.

RedAgri owns the Bright Cow brand of dairy products. It currently processes 4,000 litres of fresh milk a day, and this will be increased to 20,000 litres a day by 2022.

Looking at companies on Bursa Malaysia, are there actually listed milk entities in Malaysia?

Well, as of July 1 2020, animal health products and equipment producer, Rhone Ma Holdings Bhd quietly transformed into a milk player.

Rhone Ma first made its dairy farming ambitions known in Feb 2020.

Prior to that, the group was principally involved in three business segments, namely animal health products, food ingredients and others.

Animal health products and equipment contributed 76.58% of revenue in FY20, while food ingredients contributed 21.54%.

In a filing to Bursa on Feb 21, Rhone Ma told Bursa that it was acquiring three companies for RM7.84mil.

Rhone Ma was looking to acquire a 49% stake in One Lazuli Sdn Bhd (OLSB), Nor Lazuli Nutrition Sdn Bhd (NLN) and Nor Livestock Farm Sdn Bhd respectively.

These companies are in the business of manufacturing, wholesale and distribution of livestock feed, other related products and operating a dairy cow farm to supply fresh milk.

Then on May 2020, Rhone Ma told Bursa that it was planning a business diversification from its principal business to include the businesses of the three companies it was acquiring.

This diversification would result in the new businesses contributing 25% or more of the net profits of the group or cause a diversion of 25% or more in the net assets of the group.

On July 1 2020, the acquisition of the three companies were completed, and OLSB, NLN and NLF are now officially 49% subsidiaries of Rhone Ma.  

On the corporate side, things appear to also be brewing.

On Nov 25, Rhone Ma told Bursa that it was proposing the issuance of up to 80.34mil free warrants. The warrants are on the basis of two warrants for every five existing Rhone Ma shares held by entitled shareholders on the entitled date.

These warrants will be for free. This is a bonus issue, and not a rights issue.

In Rhone Ma’s circular to shareholders on Dec 31, 2020, for illustrative purposes only, the exercise price is assumed at 70 sen per warrant.

Rhone Ma is currently trading at the 80 sen range.

Now however, back to business. 

These are the three companies Rhone Ma acquired and the agreements it entered into:

1. A conditional share sale agreement for the acquisition of 1,225,000 ordinary shares in One Lazuli Sdn Bhd (OLSB), representing a 49% equity interest for RM5.39mil which was satisfied via a combination of cash of RM1.8mil and the remaining balance of RM3.59mil through the issuance of 5,279,411 new Rhone Ma shares at an issue price of 68 sen each.

OLSB is principally involved in the wholesale and distribution of pharmaceutical and veterinary products including animal feed. Its products largely cater to the ruminant segment.

There is a profit guarantee agreement with the vendors in relation to this proposed acquisition, whereby the vendors will provide a guarantee that the audited profit after tax of OLSB for financial years ending Dec 31, 2020 and Dec 31, 2021 shall not be less than RM2mil each.

2. The second acquisition was a conditional share sale agreement for the acquisition of 588,000 ordinary shares in Nor Lazuli Nutrition Sdn Bhd (NLN), representing 49% equity interest for RM1.75mil.

NLN is principally involved in the manufacturing, wholesale and distribution of livestock feed and other related products. Its animal feed products are mainly for the consumption by ruminants.

3. The third company was via a conditional share sale agreement for the proposed acquisition of 490,000 ordinary shares in Nor Livestock Farm Sdn Bhd (NLF), representing 49% equity interest for RM0.7mil.

NLF is principally involved in the business of livestock. Currently, it is operating a dairy cow farm supplying fresh milk to wholesalers in Batang Kali, Selangor Darul Ehsan. The entire dairy farm and the operation premise comprise an area of approximately 6.07 acres

Thus with the acquisition of NLF, the group is able to gain immediate entry into the dairy segment. NLF’s dairy farm currently produces A2 cow’s milk.